ISLAMABAD, June 5: The government has presented Rs1.5 trillion federal budget for 2006-07 in the National Assembly, which sets a revenue target of Rs840 billion, defence spending of Rs250.2 billion and fiscal deficit of Rs373.5 billion, amounting to 25 per cent of the total budget outlay.

Perceived to have been prepared with next year’s general elections in mind, the budget envisages development spending to increase by 52.57 per cent to Rs415 billion and offers a 15 per cent dearness allowance to all government employees and 20 and 15 per cent increase to pensioners who retired before 1977 and afterwards, respectively, amounting to a relief of Rs10 billion.

The government reduced income tax rates for salaried class between 0.25 per cent and 20 per cent from the existing 3.5 per cent and 30 per cent besides raising the tax exemption ceiling from Rs100,000 to Rs150,000 per annum. However, new tax rates would now be applicable on gross salary.

The budget envisages new taxes worth Rs25 billion.

An amount of Rs504 billion has been earmarked for general public service, including interest payments, debt servicing and superannuation allowances. This accounts for about 57.3 per cent of total current expenditure.

The fiscal deficit would be met through Rs213 billion foreign loans, Rs140 billion domestic bank borrowings and about Rs20 billion bonds and bearer certificates.

According to the budget document, the size of national economy (GDP) is estimated to be Rs8.893 trillion ($148 billion).

The budget document puts fiscal deficit at 4.2 per cent of GDP, which is higher than the four-per cent limit fixed by the government on itself under the Fiscal Responsibility and Debt Limitation Act. The government, however, claimed that the increase included the impact of earthquake-related expenditure, and said if the amount was not included, the fiscal deficit “comes to 3.7 per cent of GDP and hence within the four per cent limit”.

Terming the budget relief-oriented, Minister of State for Finance Omar Ayub Khan, who read out the budget speech, said the objective was to provide maximum benefits of economic growth to the people and sustain a higher growth rate with dignity.

The budget brings real estate business under the tax net with two per cent capital value tax while taxes on other services like stock market and financial services that would together yield Rs25 billion additional revenue.

The budget puts total federal government expenditure at Rs1.315 trillion, including a development allocation of Rs320 billion for federal programmes. With Rs115 billion provincial development budget, Rs50 billion for earthquake rehabilitation and over Rs20 billion petroleum price adjustment, the total size of the budget comes to little over Rs1.5 trillion.

An amount of Rs296 billion has been allocated for debt servicing, which is about three per cent lower than revised estimates of Rs305 billion and about 1.8 per cent lower than budgeted estimate of Rs301.3 billion for current year.

The Rs1.5 trillion budget is about 22 per cent higher than current year’s revised estimates of Rs1.23 trillion and over 36 per cent higher than budgeted estimates of Rs1.1 trillion for the current year.

An allocation of Rs880 billion has been made for current expenditure against revised estimates of Rs919 billion for the current year, showing a reduction of four per cent but 6.5 per cent higher than budgeted estimates of Rs826 billion.

The government envisages to spend slightly over Rs250 billion during the next fiscal year against current year’s revised estimates of Rs241 billion and budgeted allocation of Rs223 billion. It has almost become an annual feature that the government puts current expenditure and defence expenditure on the lower side in the budget estimates but makes upward revision at the end of the year.

The current expenditure in 2006-07 is projected to be four per cent lower than current year and would stand at 70 per cent of total size of the budget against 74.5 per cent during the current year.

Next year’s revenue collection has been estimated at Rs860.374 billion. Tax revenue target has been fixed at Rs835 billion against current year’s revised estimates of Rs715.7 billion.

Total resource availability for next year has been put at Rs1.32 trillion, up from current year’s revised estimate of Rs980 billion.

The budget 2006-07 estimates Rs398 billion transfers to the provinces under net proceeds of the federal divisible pool against current year’s revised estimates of Rs331 billion, showing an increase of about 19 per cent or Rs47 billion higher.

Next fiscal year’s revenues from investments are projected at Rs16 billion against Rs51 billion for current year, showing a decrease of over 300 per cent.

Estimates for the next year’s foreign inflows have been put at Rs239 billion, about 2.3 per cent higher than revised estimates of Rs234 billion and 12.7 per cent higher than the current year budgeted estimates of Rs212.4 billion.

The public sector development programme (PSDP) allocation for next year has been put at Rs435 billion, which the budget documents claim were 38.7 per cent higher than revised estimates of current year.

The government hopes to collect Rs75 billion from privatisation proceeds next year against the current year’s revised estimates of Rs90 billion. Higher-than-targeted receipts in privatisation proceeds amounting to Rs70 billion has helped the government maintain a 4.2 per cent fiscal deficit during the current year. The budget 2005-06 had projected privatisation proceeds at Rs20 billion.

Tax revenue target has been set at Rs835 billion, which is about 16.8 per cent higher than the current year’s collection while non-tax revenue has been estimated to be Rs241.89 billion, up by 6.4 per cent over the current year’s budgeted estimates of Rs227.3 billion.

Of the total taxes, target for direct taxes has been put at Rs272 billion against current year’s revised estimates of Rs235 billion, showing an increase of 15.7 per cent. The target for indirect taxes has been put at Rs569 billion compared with current year’s revised estimate of Rs481 billion, showing an increase of 18 per cent.

The target for non-tax revenue has been put at Rs242 billion, against the current year’s revised estimates of Rs307 billion, showing a reduction of about 21 per cent. This also includes Rs115 billion revenue estimates from properties and public departments, about Rs4 billion less than current year.

The government has estimated zero-collection on account of petroleum development levy against the current year’s revised collection of Rs20 billion. But the same amount would be collected by the government under the same head and would be directly used for petroleum subsidy. However, it would collect Rs18 billion development surcharge on natural gas.

The government expects Rs239.3 billion from foreign sources against the current year’s revised estimates of Rs234 billion. This includes Rs213.4 billion in foreign loans and Rs26 billion in grants. Foreign loans also include Rs76.4 billion project loans, Rs76.5 billion programme loans and Rs30.2 billion foreign currency bonds. Foreign grants during the current year amounted to Rs45 billion.

The government will provide Rs109 billion in subsidies and relief packages, including increase in salaries and pensions against the current year’s revised estimates of Rs83 billion.

The government also exempted import of tractors from customs duty and provided Rs1 billion special programme for poultry industry besides exempting the dairy production from sales tax and customs duty and sales tax exemption on dairy and livestock equipment.

The budget also offered an export promotion package by exempting leather, shoes, marble, granite and pharmaceutical industries from customs duty and reduced duties on import of CNG dispensers, boiler manufacturing, steel and engineering sectors. Duties on import of diagnostic kits and surgical fixtures has also been reduced.

The budget 2006-07 also has done away with deletion programme and replaced it with a tariff based system (TBS) and reduced by 50 per cent the duty on import of CKD condition and completely built units of trucks, buses and dumpers. The sale of big trucks and dumpers has also been exempted from sales tax.

The sales tax exemption on computer hardware has been removed but it has been given exemption from customs duty.

The budget also launched an employment scheme for 18-40 years of age group by proposing personal loans through the National Bank of Pakistan for transport, utility store franchises, mobile utility stores and public call offices.